The ordinance to amend Banking Regulation Act (Section 35A) got Cabinet's nod on Wednesday. According to sources "The cabinet has approved a major decision related to the banking sector, which has been sent to the President". In respect of the same Finance Minister, Arun Jaitley, made no elaborate remarks as it's a practice that in case any proposal is passed on to the President, details are made public only upon his approval.
Amendments in Section 35A of the Banking Regulation Act are being effected and at the same time some changes in Bankruptcy Code are also under consideration.
As reported by the senior Finance Ministry official, Government is likely to come up with an ordinance in near future that will empower the Reserve Bank of India to direct banks to better deal with ever-mounting stressed assets or bad loans (NPAs) in the sector.
Recourse available with PSU banks for resolving mounting NPAs
With the amendment in place, RBI shall be empowered to establish oversight committees for providing a cushion to bankers from any action by investigation agencies working on loan recasts. RBI for a while has been working on NPA resolution methodology that is expected to pressurize borrowers in settling their dues.
Jaitley in a statement said ""You see, the amounts are large, but the amounts are restricted. Its not that hundreds and thousands of businesses have created this problem. The problem of big NPA is confined essentially to 30-40, at best 50 companies, and therefore, those 40-50 accounts need to be resolved".
Also as per industry official, JLF or the joint lenders forum needs to be reworked on for faster decision making in NPA resolution that until now has only prolonged the process. Also, provisions are under considerations to effect willful loan default as criminal offence.
Public Sector Bank NPA Highlights
Public sector banks loaded with stressed assets in their balance sheet, as per recent government data report a total Gross NPA of 6.07 lakh crore until December 2016 end, which is a staggering increase of 1 lakh crore in the last fiscal year until December. PSBs stressed assets rose to Rs 5.02 lakh crore at the fiscal year ending 2016 from Rs 2.67 lakh crore at the fiscal year ending 2015.
Other Cabinet Approvals
In the same cabinet meeting headed by Narendra Modi, approval in respect of a new policy that shall push the usage of domestically produced steel was given.
Also, amendments to the recommendations of the Seventh Pay Commission concerning pensionsers were given a nod.